Front Office Accounting, BHMCT IHM Notes, Front Office Operations
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| Front Office Accounting BHMCT Notes Astro Motive Astrology by Astrologer Dr. C K Singh |
Front Office Accounting
“Old Accountants never die, they just lose their balance” – Industry Wisdom
Objectives:
•
Accounting Fundamentals
•
Creation and
Maintenance of Accounts
•
Tracking
Transactions
•
Internal
Controls
•
FOREX
Procedure
Definition:
Guest accounting may be
defined as the tracking of financial transactions within the front office.
1. Accounting Fundamentals and the Guest Cycle
Pre-Arrival: It captures data related to the type of reservation
guarantee and tracks prepayment and advance deposit.
Arrival: Documents the application of room rate and tax at
registration.
Occupancy: A guest accounting system tracks authorized guest
purchases
Check-out: Payment for outstanding goods and services (See Fig 1)
Fig 1
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| Guest Cycle |
The front office
accounting cycle
The important function of the front office accounting system is to maintain an accurate and up to date record of all the financial transactions between a hotel and a guest so that all outstanding accounts are settled without delay. From this it can be seen that the front office accounting process can be divided into three main phases: Front Office Accounting
2. Introduction
The front office accounting system records all of the guest’s financial transactions. The objective of a hotel is to provide facilities and services for guest in return for money. Ultimately to make a profit. To ensure that all guest bills are properly settled, hotels need to have an accurate and constantly updated record of all the guest’s financial transactions. The basic front office accounting cycle and the procedures necessary in creating and maintaining guest accounts are discussed below. Finally the posting of charges and credits to guest
Functions
Front Office Accounting System
a. Creates and maintains an
accurate accounting record for each guest or non guest account.
b. Tracks financial
transactions throughout the guest cycle.
c. Ensures internal control
over cash and non-cash transactions
d. Records settlement for all goods and services provided.
In the past it has been difficult to handle accounts by the hotel staff. In today’s industry it has been a challenge to save time and energy so certain measures are being taken these days to help the industry prosper. A guest account is a record of all the financial transactions between the hotel and the guest. It is something called a folio or a bill. Most guest accounts have a debit balance, because the guest is in debt to the hotel for the services which they have had and had charged to their account. Thus each time a guest charges an amount it is a debit entry. A credit entry refers to payments or subtractions from the balance of a guest bill. A guest’s account tells the story of their stay in the hotel. Front Office Accounting
3. Basics of keeping accounts
An account is a record of the
business transaction and on this document financial data are recorded and
summarized (i.e) increase or decrease in account and the resulting monetary
amount is the account and contains information about the transaction and it is
a device for recording increase or decrease in an asset, liability or equity,
item. To understand better it is written
in the form of “T”. The increases are
written on the left or right side of the “T” format depending on the type of
account.
For example:
The increase will be written
in the left hand side if the transaction effects an ‘asset account’ (which
means that the business owns) and the decrease will be written on the right
hand side. Further, all that the
business owes to outsiders are called liabilities and if there are any increase
in liabilities then they are recorded on the left side of the “T” format.
A journal format is also used. A journal format has columns description of
account charges, payments and balance.
Increase in account balance are entered under charges, and the decrease
in account balances are entered under payments.
The journal is the first record of the transaction. Hence we can summarize that the original recording
is done on journals, which can be in any form such as cash register, tapes,
computer records, accounting paper or folio.
The next step is transferring of the total of the information on
journals to the ledger. Hence ledger can
be called as grouping of the accounts used by the business and provides
information necessary to prepare various accounting reports. Ledger is summary of journals. The totals entered into journals are carried
to specific accounts.
As it is important that a proper record of all the
expenses made and revenue generated is maintained by every business organizations
for various reasons. For this, three
main accounting reports are prepared.
Profit and loss statement
Balance Sheet
Statement of changes in financial position
4. Creation of Accounts
A guest account or a folio is usually created immediately after the guest checks in.
a. Guest Folios Accounts
assigned to individual persons or guest rooms.
B. Master Folios – Accounts
assigned to more than one person or guest room; usually reserved for group
accounts.
c. Non guest or Semi
permanent folios: Accounts assigned to
non guest business or agencies with hotel charge purchase privileges.
d. Employee Folio - Accounts assigned to employee charge purchase privilege.
5. General Concepts in Front Office Accounting
- What is an account?
- What is a Folio?
- What is a Ledger?
Accounts:
An account is a form on which financial data
are accumulated and summarized.
It stores the results of various business
transactions.
The increases and decreases in an account are calculated and the resulting monetary amount is the
In an automated system, charges and payments may be listed in a single column, with the amounts of payments noted with minus signs to indicate their effect (a decrease) on the account balance. Astro Motive Astrology by Astrologer Dr. C K Singh
The left side of the account is called the
debit side and the right side in the credit side.
The sum of the debit entries created by a transaction must equal the sum of the credit entries. This fact forms the basis for an accounting process called night audit.
Folio
FO transactions are typically
charted on account statements called folios. It is a statement
of all transactions affecting the balance. Astro Motive Astrology by Astrologer Dr. C K Singh
The process of recording transactions on a folio is called a posting. Some maybe handwritten in the form of a journal or computer generated in the form of electronic folios and can be printed, reviewed etc at any time Front Office Accounting
There are four types of folios:
a. Guest folios: accounts assigned to individual persons
b. Master folios: accounts assigned to groups
C.Non-guest folios: assigned to non-guest businesses
d. Employee Folios: assigned to employees with charge purchase privileges.
Why every folio does have a unique serial no.
They serve as identification
nos. that helps ensure all folios are accounted for during an audit.
· Folio numbers may be used to index information in automated systems and hence show as a chain of documentation. Front Office Accounting
Ledger
Is a summary grouping of accounts?
The FO ledger is a collection of FO account folios the folios represented in the FO are a part
of the FO accounts receivable ledger.
An account receivable represents money owed to the hotel.
Front office accounting is split into 2 groups:
· Guest ledger (Transient
ledger/FO ledger) for Guest receivable
· City Ledger for non Guest receivable
The Guest ledger refers to
the set of guest accounts that correspond to registered guests or to those who
have sent advance deposits. E.g. Guest paying in advance may transfer their
bills to the ledger or during their stay they settle any outstanding balance.
It is also called the Transient Ledger, Front Office Ledger or Rooms Ledger.
City Ledger :( Non-guest ledger)
Is a collection of non-guest accounts? If not settled in full be cash payment at check out the folio is transferred to the accounting division for collection.
6. Account Maintenance
A folio used to record
transactions, which affect a front office account balance.
Folios must be accurate, complete and properly filed since guests may request for their bills with no advance notice. Astro Motive Astrology by Astrologer Dr. C K Singh
One of the major advantages of electronic data processing is that captured data need only be handled once. An automated system can significantly reduce errors caused by repetitive data handling. Astro Motive Astrology by Astrologer Dr. C K Singh
7. Front Office Accounting Formula
Previous Balance + Debits-Credits=Net Outstanding Balance
8. Tracking Transactions
A major concern of the FO accounting process involves the communication of transactional information from remote points of sale to the FO
Charge purchase transactions
must be correctly documented in order for the FO to maintain accounts.
The night audit is intended to verify transactional data to ensure that the FO collects accounts receivable for all goods and services Astro Motive Astrology by Astrologer Dr. C K Singh
There are a variety of transactions as:
- Cash Payment
- Charge Purchase
- Account Correction
- Account Allowance
- Account transfer
- Cash Advance
Cash payments reduce a guest’s net outstanding balance are posted as credits to the guest thereby decreasing the balance of the account. A cash voucher is used to support such transactions. Astro Motive Astrology by Astrologer Dr. C K Singh
Charge Purchase
These represent deferred payment transactions. The buyer /guest receive the goods and services from the hotel but choose to pay for them later. Thus increasing the outstanding balance. A charge voucher takes care of the same. This is filled up by the POS and handed over to the front desk
Account Correction
It resolves an account
correction posting error on a folio.
This is usually made on the
same day the error is made, before the close of business. A correction
voucher is used here.
The correction may increase or decrease the account balance.
Voucher
A voucher details a transaction to be posted to a front office account. Several types of vouchers are used in front office accounting, including cash vouchers, charge vouchers, transfer voucher, allowance voucher and paid out voucher Front Office Accounting
Point of Sale: Describes the location at which goods or services are purchased.
Account Allowance
It involves 2 types of transactions.
1) for service recovery
2) A posting error noted after the close of business (NA)
An allowance voucher is used here. It
requires management approval
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| Allowance Voucher |
(Fig1. Courtesy-Taj President, Mumbai)
Account transfer
A transfer voucher supports the reduction in balance on the originating folio and the increase in balance in the destination folio. Front Office Accounting
Cash advance
An advance voucher is used here. If guests want cash advance against the room this is supported by the cash voucher. Astro Motive Astrology by Astrologer Dr. C K Singh
9. Internal Control
It involves tracking
transaction documentation
· * Verifying account
entries and balances
* Identifying vulnerabilities in the accounting system
Auditing is the process of verifying FO records for accuracy and completeness. Financial interaction produces paperwork which documents the nature and the resulting amount of the transaction. Front Office Accounting
10. Front Office Cash Sheet
The FO is responsible for collecting cash transactions which will affect guest and non guest accounts. Proper cash handling procedures and controls must be established and implemented. Astro Motive Astrology by Astrologer Dr. C K Singh
Why is it required?
•
Lists each
receipt of disbursement of cash
•
Used to reconcile
cash on hand at the end of a cashier shift.
•
Provides separate
columns to record transactions affecting guest accounts and non guest accounts.
•
Records money
collected when guests check out
• Provides space for itemizing cash disbursements or paid outs.
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| Log Sheet Cash Sheet |
11. Foreign Exchange
As the tourism industry in any country is a prime source for the generation of foreign exchange, governments would like to keep a close tab on all foreign currency realized.
What is required?
*Each hotel has to get valid
authorization to deal in FOREX
*The Front office cashier is
the authorized person on behalf of the management who earns FOREX.
* The daily exchange rate should be displayed for guests but these vary from time to time.
What is the procedure in hotels?
*Request the guest to produce
his/her passport details.
*Ask the guest for his room
number.
*In case of non-residents,
request the guest to contact the lobby manager as an authorization is required.
*Find out the currency to be
exchanged, and determine whether it is exchangeable as per Government banking
regulations.
*Fill in the FOREX
certificate
*Request for the signature of
the guest.
*Compare the signatures
*Receive the amount of foreign currency by multiplying the foreign currency with the rate of exchange Astro Motive Astrology by Astrologer Dr. C K Singh
What is the procedure in hotels?
*Give the original copy of
the certificate and the total amount in local currency to the guest.
*Attach the second copy of
the encashment certificate to the notes/travelers cheques.
* Fill in the reception
cashiers report
* In some manual systems a Foreign Currency Control Sheet needs to be filled.
12. Audit Controls
Why?
A number of front office audit controls ensure that the front office staff properly handle cash, guest accounts and non-guest accounts. Front Office Accounting
How?
Publicly held lodging companies are required to have both their front and back office accounting records audited yearly by independent certified public accounts. Sometimes this may be done through internal auditors who carry out surprised checks to audit accounting records. After their findings their reports are submitted for review to the management
13. Maintenance of Accounts
- Once the guest account has been opened, all financial transactions between the hotel and the guest will be recorded on that account. The fact of recording the transaction into the guest account is called posting. Front Office Accounting
- If a hotel is using a computer system, a guest account will be created when the guest details are entered into the computer at check-in. The information will be stored in the memory of the computer. Astro Motive Astrology by Astrologer Dr. C K Singh
- Once a guest account is created, any subsequent debits or credits may be posted directly to that account. This can be done in a number of ways.
- Some charges are posted by the computer automatically to the guest account.
- Charges can be transferred directly from computer terminals in other departments.
- By a computer link from one computer system to the main system.
- In case where a department is not linked to the computer system at the front office, it is done by vouchers or dockets. Front Office Accounting
14. Types of Accounts maintained by the Front Office Cashier
Resident Guest Accounts:
These accounts show the financial transactions of the guests who have a reservation and are staying at the hotel. Most of the accounts held by the Front Office cashier are resident guest account. Astro Motive Astrology by Astrologer Dr. C K Singh
City Account
City accounts are records of
financial transactions between the hotel and non resident guest. Which includes local business people who use
the hotel facilities and services for entertainment or business purposes?
Guests who walk out of the
hotel without settling the outstanding balance on their account. Walk outs are no longer resident so their
account is transferred to the city ledger, either to await payment or to be
written off as a ‘Bad debt’.
Guests who have sent prepayments to guarantee their bookings but have not arrived or checked in. This amount is normally recorded in the city ledger. Front Office Accounting
Management Accounts:
Management Accounts are expense accounts or allowances given by the hotel to the hotel managers. These accounts are used to entertain guest or potential clients.
Basic Accounting in Front Office
Accurate accounting is the first and oldest responsibility of the business office. Most accounting functions are of a technical nature and require special training. However, everyone who is employed in the business office needs to understand accounting concepts.
15. Accounting Tools
Accurate accounting is required to track and monitor revenue and operating expenses, determine profits and determine tax payments. The main accounting tools that are used by the business office are as follows: Front Office Accounting
Guest Accounts
An account is a record of
charges and payments. Adding a charge or
payment is called posting to the account.
A charge that is posted to a customer account is called debit, and the
payment is called credit. A debit
increases the amount of money that the customer owes, whereas a credit reduces
the amount. Thus, when a debit is posted
the amount of the debit is added to the account. When a credit is posted, the amount is
subtracted. The result is the balance,
the amount of money that is owed after the new debit or credit is posted.
A new balance is created each time a credit or a debit is posted to the account. The previous balance, before the current debit or credit is posted, is called the balance forward.
Invoices
A guest check is a type of
invoice – a request for payment of itemized charges. Occasionally, a guest will ask for the amount
on the guest check to be charged to a corporate account. This situation may occur if a company has a
credit arrangement with the hotel, so that the company’s employees do not have
to pay at check-out. When conventions,
seminars, and trade shows are held at the hotel, many other transactions other
than room charges may be charged to corporate accounts. Charges for the banquet or meeting rooms,
microphones, podiums, projectors and so forth may be incurred.
To establish a credit rating, the accounting
department may contact credit references ---- vendors that the companies
applying for credit has purchased goods from in the past ---- or a credit
rating bureau, which keeps credit data on various companies.
When a company’s credit status is approved by the
accounting department, a credit account is set up for the company. Credit transactions are posted to the
company’s account, and an invoice is sent to the company to request the
payment.
At most properties, invoices are printed by the
computer and mailed out at the end of each week or, at larger properties, one
each month.
When a credit account is established, the client company agrees to pay invoices within a specified period, called the credit terms. If a client is required to pay within thirty days of the receipt of an invoice then the credit terms are “net 30”. If the payment is not received within credit terms, the account becomes past due. Past due invoices may be turned over to a collection agency, or interest may be added to the past due amount.
Account Allowance: Involves two types of transactions.
One type of account allowance is a decrease in a folio balance. Another type of account allowance consists of a posting error detected after close of business. Front Office Accounting
Statements
A statement is a monthly listing of invoices and payments on a client account. Statements are mailed out monthly. Each statement shows the transactions during the previous month. The date and amount of any payments that were received are also shown. The current balance is shown at the bottom. Astro Motive Astrology by Astrologer Dr. C K Singh
Technically, a statement is not a request for payment, but a summary of the client’s account transactions. However most companies use statements to determine how much to pay in their accounts. A typical client will pay the current statement balance in full each month, rather than making separate payments for each invoice.
Accounts Receivable
Journal
When a credit transaction is
made, the money that is owed to the hotel is called an ‘Account Receivable’. (Payment made by credit card is considered a
cash transaction, because the hotel is assured by the credit card company of
receiving payment.)
A journal is a bookkeeping
device, such as a book or a computer program that is used to post credit
transactions and keep a track on client payments.
Each type of transaction has an account code. The codes are determined from a list, called a chart of accounts. Different codes are used for room charges, restaurant charges, and guest purchases and so on. When amounts are posted to the accounts receivable journal, the appropriate account code is entered to indicate the type of transaction. Astro Motive Astrology by Astrologer Dr. C K Singh
Ledger
A front office ledger is a
collection of account folio. The folios
used in the front office, form a part of front office account receivable
ledger. (Money owed to a hotel). Guest financial transactions are recorded on
to the guest ledger account to track receivable balances. A ledger is an important book for the
preparation of profit and loss account and balance sheet of an organization.
Ledgers are basically
classified into two types:
Personal Ledger: This is used in Hotel business for recording personal
accounts of guests.
Impersonal Ledger
This is used for recording impersonal accounts and depending on the type of impersonal accounts such as revenue, expenses and assets and liabilities. Front Office Accounting
There are two types of
Impersonal ledger:
a. Trade Ledger
B. General Ledger
Guest Ledger
It is the total set of all
accounts of guests registered in the hotel (in-house guest). The guest ledger is used to track the daily
transactions of each revenue- generating side of hotel triangle. (Room catering
and outlet sales)
For example:
A guest goes to the restaurant of the hotel and orders his meal. The waiter serves meal to him and after that presents the bill to him. The guest signs the bill/ check and charges into his room account. Astro Motive Astrology by Astrologer Dr. C K Singh
16. Settlement of Accounts
The collection of payment for
outstanding account balances is called account settlement. Settlement involves bringing an account
balance to zero. An account can be
brought to zero as a result of cash payment in full or a transfer to an
approved direct billing or credit card account.
All guest payments must be settled at the time of check out. Transfers to approved deferred payment plans
move outstanding guest folio balances from the guest ledger to the city ledger.
Although guest account settlement normally occurs at
the time of check-out, guests may make payments against outstanding folio
balances at any time. Non guest folio
balances may be initially billed on the day the transaction occurred. Settlement may be due in 15 to 30 days
depending on front office policy.
Example
Consider the case of a guest
who makes a guaranteed reservation but does not show up, often called a ‘no
show’. The account cannot be settled at
check out as the guest never came, so the front office sends a statement to the
guest for the amount guaranteed, hoping to collect the balance in 15 to 30
days. Front Office Accounting
If the guarantee was made by credit card, the hotel may have an agreement with the credit card company to bill for the no-show guest. The amount of the guarantee is then transferred to the credit card part of the accounts receivable ledger for collection.
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